Invesco Perpetual sees repeat of 2009 trends in Euro markets
The current market recovery in Europe has strong parallels to the way markets performed post the initial euphoria in 2009, according to research conducted by Invesco Perpetual’s UK-based European equity team.
With financials and other cyclical sectors leading the way, and risk-off sectors like telecoms, healthcare and consumer staples trailing, the latest “survivor’s party” triggered by the European Central Bank’s intervention via the LTRO recalls the “dash to trash” rally of early 2009 sparked by the rhetoric and actions of the US Federal Reserve, which temporarily dissipated fears over the ultimate survival of the financial system.
Following the initial “back from the brink” trade, market leadership broadened out significantly during the remainder of 2009, a development that Invesco Perpetual’s investment experts expect to repeat itself in 2012.
Then as now, policymakers had to navigate through several hurdles, which today include high youth unemployment and austerity.
“While we have undoubtedly travelled a long way through this crisis and the likelihood of a systemic event has receded a touch, the backdrop remains challenging,” says Luke Stellini, European Product Director at Invesco Perpetual. “In order to sustain a rally far beyond current valuation levels, single survivor stocks and sectors must provide further evidence of improving fortunes.”
As valuation considerations return to the fore, Invesco Perpetual analysts expect market leadership to return to attractively valued businesses in a diverse set of sectors, with stocks that demonstrate healthy and growing dividends holding particular attractions.
Two variables that may introduce some risk to the economic outlook include the medium-term effects of the record-high oil price on the downside and the possibility of positive surprises from consumption behaviour in the core of Europe, where German industrial workers are negotiating a strong wage increase, on the upside.